a) Southern California Water Co. does not require deferring allocation of the Mid-Valley Landfill settlement proceeds to the gain on sale rulemaking proceeding.

San Gabriel argues that the allocation of settlement proceeds adopted in D.07-04-046 is based on an "incomplete and faulty" reading of a 2004 Commission decision, Southern California Water Co. (SG Reh. App., p. 10, citing, Southern California Water Co. [D.04-07-031], supra.) San Gabriel says that a correct reading of Southern California Water Co. should lead us to defer ruling on the allocation of the Mid-Valley Landfill settlement proceeds until we have resolved the policy issues still pending in Phase 2 of the gain on sale rulemaking, R.04-09-003. (SG Reh. App., p. 10.) This argument is without merit.

The Southern California Water Co. decision involved two types of proceeds related to groundwater contamination and the two matters were treated differently. First, with regard to proceeds from a settlement that involved conveyance of water rights that were no longer necessary or useful in the provision of water service, the Commission found section 789 et. seq. to be applicable and ordered the utility to invest the proceeds in infrastructure improvements. (Southern California Water Co. [D.04-07-031], supra, at pp. 9 - 10, pp. 23 - 24, Ordering Paragraphs 1, 2 (slip op.).)

On the other hand, in considering contamination payments to the utility ordered by the Environmental Protection Agency (EPA) for loss of use of groundwater, the Commission ordered the net proceeds of the payments to be booked for future refund to ratepayers. (Id. at pp. 11, 24, Ordering Paragraph 4 (slip op.).) Southern California Water Co. also holds that the Commission deals with ratemaking treatment of damage awards in contamination lawsuits and settlements on a "case by case basis." (Id. at p. 23, Conclusion of Law (COL) 5 (slip op.).) Southern California Water Co. does not hold that contamination settlement proceeds, without a transfer of property rights, is equivalent to a sale, nor does it refer to the gain on sale rulemaking which we had not initiated at that time.

Moreover, the order instituting the gain on sale rulemaking stated that gain from groundwater contamination litigation would not be addressed in that proceeding. (Order Instituting Rulemaking Regarding Allocation of Gains on Sale by Energy Utilities, Incumbent Local Telecommunications Carriers and Water Companies [R.04-09-003, at pp. 29 - 30 (slip op)] (2004) __ Cal.P.U.C.3d __.) In explaining that the rulemaking would not address the issue of contamination proceeds, D.07-04-046 cites an earlier decision issued in that rulemaking proceeding, saying:

We said contamination proceeds do not involve sales of real property, so the Infrastructure Act does not apply, nor are such proceeds gains on sale; such proceeds are outside the scope of that proceeding.

(D.07-04-046, p. 76, citing Gain on Sale Decision [D.06-05-041] supra, at pp. 70, 91, FOF 44 (slip op.).) For the above reasons, San Gabriel's argument that allocation of its Mid-Valley Landfill settlement proceeds should be deferred to the gain on sale rulemaking is without merit.